These employees can get a bonus of up to 20% of their wages under the new labour code; check the details

The Ministry of Labour and Employment has released two notifications which essentially bring good news for employees. These two notifications say that all employees earning up to Rs 21,000 per month can get bonus money from their employer, subject to certain calculation-related conditions. But for those employees who earn more than Rs 21,000 per month, this bonus payment is not mandatory.

The annual bonus which eligible employees can get is a minimum of 8.33% and a maximum of 20% of the wages earned. (The calculation and legal rationale is given in the later part of this article).

Bhavya Sriram, Partner - JSA Advocates & Solicitors, said to ET Wealth Online that as per Section 26(1) of the Code on Wages, 2019, an employee drawing wages not exceeding Rs 21,000 per month is eligible for statutory bonus, provided the said employee has worked for at least 30 days in the accounting year.


Sriram says: “If an employee's monthly wages exceed Rs 21,000, they fall entirely outside the statutory bonus framework and the employer has no legal obligation to pay them bonus under this statute.”

Also read: New labour code impact: Rs 8k less take home pay likely for employee with Rs 15 lakh CTC; check the impact on CTCs of Rs 10 lakh, Rs 25 lakh and Rs 50 lakh

How this bonus is calculated for employees?

The prescribed bonus-calculation amount is effectively the higher of Rs 7,000 per month or the applicable minimum wage. For example you earn Rs 15,000 per month, but work in a state which prescribes that the work you do should get Rs 10,000 as minimum wage. Thus for the purpose of new labour code, your bonus is calculated assuming your wage is Rs 10,000, even though it is Rs 15,000.

This is done by lawmakers to balance both employer’s liability and give bonus money to employees.

Sriram shares two examples A and B to show how it works:

Scenario A:

An employee earns Rs 15,000 per month and the applicable minimum wage for their scheduled employment is Rs 10,000 per month. Since the calculation ceiling under Section 26(2) of the Code on Wages, 2019 is the higher of Rs 7,000 and the applicable minimum wage, the ceiling in this case is Rs 10,000 per month.

The Code on Wages, 2019 requires that the bonus be computed on a wage of Rs 10,000 per month, rather than the actual monthly wage of Rs 15,000. (Our calculations: So the minimum bonus is Rs 10,000 × 8.33% × 12 = Rs 9,996 per year in this scenario.)

Also read: New labour code 2025: Bonus and leave encashment calculator if bonus is 10%, 15%, 20%, 25% of CTC

Scenario B:

An employee earning Rs 20,000 per month, in a state where the applicable minimum wage for their category is Rs 9,000 per month, has their bonus calculated on Rs 9,000 since it is higher than the floor of Rs 7000.

Taking this example further - at the statutory minimum of 8.33%, that’s Rs 9,000 × 8.33% × 12 = Rs 8,996.40 bonus for the year. If the company’s allocable surplus supports the full 20%, it rises to Rs 21,600 for the year (since 20% is the maximum bonus a company can give).

Why is the bonus calculation like this?

To tell the answer to this, you need to know that under Section 26(2) of the Code on Wages, 2019, where an eligible employee's wages exceed the notified calculation amount, the bonus is not calculated on the employee's actual wages.

Instead as Sriram explains the bonus is calculated as if the employee's wages were Rs 7,000 per month or the minimum wage fixed by the Central Government, whichever is higher.

Sriram says: “This means the law caps the wage base used for computing the bonus, thereby limiting the employer's liability and the employee's entitlement.”

So after establishing that an employee qualifies under the eligibility criteria, Sriram says that S.O. 4710(E) is applied to determine the bonus calculation methodology. Where monthly wages exceed Rs 7,000, the statute does not permit calculation of bonus on the employee's actual wages.

Sriram says: “Instead, the calculation base shall be the higher of Rs 7,000 per month or the minimum wage prescribed by the Central Government.”

What does the new labour code say about when this bonus has to be paid?

Section 39 (1) of the Code on Wages, 2019 provides that all amounts payable to an employee by way of bonus must be paid by crediting it to the employee's bank account within eight months from the close of the accounting year.

Sriram says that this period can be increased to up-to two years if the employer makes an application furnishing sufficient reasons for extension. Section 19 of the Payment of Bonus Act, 1965 also prescribed an 8-month deadline from the close of the accounting year.

Section 39(2) of the Code on Wages, 2019 carves out situations where there is a dispute regarding payment of bonus pending before any authority.

In such cases, Sriram says that the bonus must be paid within one month from the date on which the award becomes enforceable, or the settlement comes into effect.

According to Sriram, if the dispute concerns payment of bonus at a higher rate (i.e., the employee is demanding more than the minimum), the employer must still pay the undisputed minimum bonus of 8.33% of the wages earned within the standard eight-month period from the close of the accounting year.

Sriram says: “Only the disputed excess amount can be held back pending resolution of the dispute.”

What happens if the employer does not pay the bonus?

Sriram says that failure to pay the statutory bonus can result in both legal proceedings initiated by the employee for recovery of the amount due, and penal consequences for the employer.

Under Section 45 of the Code on Wages, 2019, a claim may be made before the authority appointed by the appropriate Government. The authority can direct the employer to pay the outstanding bonus and may additionally award compensation of up to 10 times the amount of the claim.

Sriram says: “A claim can ordinarily be filed within 3 years, and delayed claims may also be entertained if sufficient cause is shown.”

If the employer still does not pay the bonus amount as determined by the appropriate authority, then a recovery certificate can be issued to the Collector/District Magistrate, and then the said unpaid bonus amount can be recovered using the same mechanism as arrears of land revenue.

Moreover, under Section 54(1)(a) of the Code on Wages, 2019 an employer who pays an employee less bonus than the amount due under the Code on Wages, 2019, may be punished with a fine of up to Rs 50,000.

Sriram says: “For a repeat offence of the same nature within five years, Section 54 provides for imprisonment up to 3 months, a fine up to Rs 1 lakh, or both.”

Can employees do anything if their employer does not give this bonus?

If you employer has not given the bonus then under Section 45 of the Code on Wages, 2019, an application for claiming unpaid bonus may be filed before the authority appointed by the appropriate Government.

Sriram says that this the application may be made by the employee, a registered trade union of which the employee is a member, or the Inspector-cum-Facilitator. A single application may also be filed for multiple employees of the same establishment.

Sriram says: “The claim should ordinarily be filed within 3 years from the date on which it arose. However, the authority may entertain a claim even after three years if sufficient cause for the delay is shown.”